Tuesday, August 12, 2014

SIlK ... Disposal Of SILK Highway Could Stall !!

IJM Corp’s plan to acquire the 37km as Kajang Dispersal Ring Road or SILK Highway from SILK Bhd for rm398 could stall because bondholders want a slice of the pie.

Industry observers say the existing holders of some rm864 million worth of sukuk attached to the highway are seeking from SILK Holdings a cut from the deal.

In May 2014, IJM Corp offered to acquire the assets and liabilities of SILK Holdings’ subsidiary SILK Sdn Bhd for rm398 million. Combined with debts this values the highway at about rm1.26 billion.

The corporate guarantee of the bonds is SILK Holdings while the bonds were issued under SILK Sdn Bhd.

For the deal to proceed, the corporate guarantee must be transferred to IJM Corp. However this requires 75% approval from the existing bondholders.

The bondholders are said to be seeking at least a rm250 million to rm300 million cut from the rm398 million sale. SILK Holdings is expected to reject their demand but it may negotiate an arrangement with them to ensure the deal goes through.

An alternative would be for SILK Holdings to buy back the outstanding sukuk at a premium but could prove expensive.

Industry observers point out that the highway’s debts had to be restructured in the past when traffic volume did not meet earlier projections resulting in a cash flow shortfall. The highway was opened in 2004 but it has not been profitable since. To keep SILK Sdn Bhd solvent the bonds were restructured so that a substantial portion of the coupon payments on the highway was deferred to 2016.

From the bondholders’ perspective, when 2016 comes around, SILK Holdings will have to fork out all the deferred coupon payments. If the asset becomes distressed and goes into receivership, the bondholders would effectively take control of the highway which is worth rm398 million.

Note that SILK Holdings is heavily geared with a net debt position of rm1.58 billion and a net gearing ratio of 7.5 times.

SILK Holdings were controlled by Johan Zainuddin with a 33.5% stake followed by Abdul Rahman with a 21.7% and Datuk Mohd Azlan Hashim with 19.6%.

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